Arsjad Rasjid, Vice-President Director and Group Chief Financial and Operating Officer, Indika Energy: Interview

Arsjad Rasjid, Vice-President Director and Group Chief Financial and Operating Officer, Indika Energy

Interview: Arsjad Rasjid

Is land acquisition still the main challenge for private investment in power, mining and related infrastructure? Where can the government assist?

ARSJAD RASJID: While the government policy is angled towards developing value-added industry, these new processing plants and accompanying infrastructure all require energy. In order to secure requisite private sector investment, there needs to be far greater coordination among different ministerial departments.

The government should also start securing land for private sector investors in advance; this has been occurring successfully in China for many years. Acquisition of dedicated land banks and a well-run infrastructure bank should be pursued in order to catalyse development. However, perhaps even more pressing is the problematic state of bureaucracy which hinders not only the mining sector but also the entire energy sector. This is the most challenging and time-consuming element mainly because there is no alignment among central government, provinces and regencies. The Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development is a great strategy but alone it is not enough. All departments involved must feel a sense of ownership over projects and an according responsibility to assist development in areas which will have a huge impact if executed properly. Structural reform must also be undertaken to ensure such alignment by dividing liability between government departments. The government must do its best to create a system which enables tangible progress to be made.

Are there any short-term government policy actions that could breathe new life into the mining sector, which has faced challenges in the past two years?

RASJID: The key is to create a policy that is honest. We must look upon ourselves and compare the current Indonesian landscape to other parts of the world. A poignant comparison is to Nigeria, where many European and US mining companies are investing despite the challenging security characteristics. While mining policy can still reflect national interest to an extent, policy must also be competitive and realistic.

Domestic policy makers must also understand the process such as supply chain management, including the differences between minerals and ores in relation to processing. What the government must understand is that clarity is key. This is why companies operate in Nigeria in light of security constraints. If Indonesia followed such a regulatory example it would likely become the preferred destination.

What effect has China’s demand for coal had on the Indonesian mining landscape, and how can this relationship continue to benefit Indonesia?

RASJID: In 2013 China introduced two policies that impacted the global and Indonesian coal markets significantly. The first policy set a maximum exploitation limit of 50% for domestic Chinese coal reserves while the second increased standard safety requirements which in turn caused higher production costs for Chinese companies. In fact, some mines were forced stop their operations to ensure that they are able to meet these new standards. The combination of these two policies caused an immediate surge in demand for coal from Indonesia, demonstrating both that China will remain an important buyer of Indonesian coal and the tangible effect a policy change can have.

Today, while Chinese economic growth is slightly lower, it is still growing and they have built so much coal-reliant power-generation capacity that the country will continually need to import. We also predict that in the future China will come overseas to further consolidate coal supply in destinations such as Indonesia which lacks infrastructure but has resources in abundance.

China has several mineral processing plants and, while it may be difficult to export Indonesian-sourced minerals in light of regulation, this could well prompt China to build processing facilities here. We hope that our pre-established partnership can be further consolidated upon in order to benefit both countries.

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The Report: Indonesia 2014

Mining chapter from The Report: Indonesia 2014

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